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Article by DailyStocks_admin    (02-25-09 05:35 AM)

The Daily Magic Formula Stock for 02/25/2009 is Hub Group Inc. According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

General

Hub Group, Inc. (“Company”, “we”, “us” or “our”) is a Delaware corporation that was incorporated on March 8, 1995. We are one of North America’s leading asset-light freight transportation management companies. We offer comprehensive intermodal, truck brokerage and logistics services. Since our founding in 1971, we have grown to become the largest intermodal marketing company (“IMC”) in the United States and one of the largest truck brokers.

We operate through a network of 21 operating centers throughout the United States and Canada. Each operating center is strategically located in a market with a significant concentration of shipping customers and one or more railheads. Through our network, we have the ability to move freight in and out of every major city in the United States, Canada and Mexico. We service a large and diversified customer base in a broad range of industries, including consumer products, retail and durable goods. We utilize an asset-light strategy in order to minimize our investment in equipment and facilities and reduce our capital requirements. We arrange freight movement for our customers through transportation carriers and equipment providers.

We sold substantially all of the assets of Hub Group Distribution Services, LLC (“HGDS” or “Hub Distribution”) to the President of the former subsidiary on May 1, 2006. Accordingly, the results of operations of HGDS for the years ended December 31, 2006 and 2005 have been reported as discontinued operations.

Services Provided

Our transportation services can be broadly placed into the following categories:

Intermodal. As an IMC, we arrange for the movement of our customers’ freight in containers and trailers, typically over long distances of 750 miles or more. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for pickup and delivery. In certain markets, we supplement third party drayage services with Company-owned drayage operations. As part of our intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

We use our network to access containers and trailers owned by leasing companies, railroads and steamship lines. We are able to track trailers and containers entering a service area and reuse that equipment to fulfill the customers’ outbound shipping requirements. This effectively allows us to “capture” containers and trailers and keep them within our network. As of December 31, 2007, we also have exclusive access to approximately 2,935 rail-owned containers for our dedicated use on the Burlington Northern Santa Fe (“BNSF”) and the Norfolk Southern (“NS”) rail networks and approximately 3,175 rail-owned containers for our dedicated use on the Union Pacific (“UP”) and the NS rail networks. In addition to these containers, during 2005, 2006 and 2007, we added a total of 7,400 new 53’ containers for use on the BNSF and NS. We financed these containers with operating leases. These arrangements are included in Note 7 to the consolidated financial statements.

Through our subsidiary Comtrak Logistics, Inc. (“Comtrak”), we acquired substantially all the assets of Comtrak, Inc. at the close of business on February 28, 2006. Comtrak is a transportation company whose services include primarily rail and international drayage for the intermodal sector. The results of Comtrak are included in our results of operations from March 1, 2006, its date of acquisition.

Our drayage services are provided by our subsidiaries, Comtrak and Quality Services, LLC (“QS”) who assist us in providing reliable, cost effective intermodal services to our customers. Our subsidiaries have terminals in Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland, Columbus, Dallas, Huntsville, Jacksonville, Kansas City, Los Angeles, Memphis, Nashville, Perry, Savannah, St. Louis, Stockton, and Tampa. As of December 31, 2007, QS and Comtrak owned 329 tractors, leased 23 tractors, leased or owned 706 trailers and employed 331 drivers and contracted with 845 owner-operators.

Truck Brokerage (Highway Services). We are one of the largest truck brokers in the United States, providing customers with another option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations. We have contracts with a substantial base of carriers allowing us to meet the varied needs of our customers. As part of the truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss and damage on behalf of our customers.

Our truck brokerage operation also provides customers with specialized programs. Through the Dedicated Trucking Program, certain carriers have informally agreed to move freight for our customers on a continuous basis. This arrangement allows us to effectively meet our customers’ needs without owning the equipment.

Logistics . Our logistics business operates under the name of Unyson Logistics. Unyson Logistics is comprised of a network of logistics professionals dedicated to developing, implementing and operating customized logistics solutions. Unyson offers a wide range of transportation management services and technology solutions including shipment optimization, load consolidation, mode selection, carrier management, load planning and execution and web-based shipment visibility. Our multi-modal transportation capabilities include small parcel, heavyweight, expedited, less-than-truckload, truckload, intermodal and railcar. Unyson Logistics operates throughout North America with offices strategically located in key market areas.

Our entire network is interactively connected through our proprietary Network Management System. This enables us to move freight into and out of every major city in the United States, Canada and Mexico.

Each operating center manages the freight originating in its service area. In a typical intermodal transaction, the customer contacts the local operating center to place an order. The operating center consults with the centralized pricing group, obtains the necessary intermodal equipment, arranges for it to be delivered to the customer by a drayage company and, after the freight is loaded, arranges for the transportation of the container or trailer to the rail ramp. Relevant information is entered into our Network Management System by the assigned operating center. Our predictive track and trace technology then monitors the shipment to ensure that it arrives as scheduled and alerts the customer service personnel if there are service delays. The assigned operating center then arranges for and confirms delivery by a drayage company at destination. After unloading, the empty equipment is made available for reloading by the local operating center in the delivery market.

We provide truck brokerage services to our customers in a similar manner. In a typical truck brokerage transaction, the customer contacts the local operating center to obtain a price quote for a particular freight movement. The customer then provides appropriate shipping information to the local operating center. The local operating center makes the delivery appointment and arranges with the appropriate carrier to pick up the freight. Once it receives confirmation that the freight has been picked up, the local operating center monitors the movement of the freight until it reaches its destination and the delivery has been confirmed. If the carrier notifies us that after delivering the load it will need additional freight, we may notify the operating center located nearest the destination of the carrier’s availability. Although under no obligation to do so, the local operating center then may attempt to secure freight for the carrier.

Marketing and Customers

We believe that fostering long-term customer relationships is critical to our success. Through these long-term relationships, we are able to better understand our customers’ needs and tailor our transportation services to the specific customer, regardless of the customer’s size or volume. We currently have full-time marketing representatives at various operating centers and sales offices with primary responsibility for servicing local, regional and national accounts. These sales representatives directly or indirectly report to our Chief Marketing Officer. This model allows us to provide our customers with both a local marketing contact and access to our competitive rates as a result of being a large, national transportation service provider.

Our marketing efforts have produced a large, diverse customer base, with no customer representing more than 5% of our total revenue in 2007. We service customers in a wide variety of industries, including consumer products, retail and durable goods.

We maintain a joint marketing relationship with TMM Logistics, a wholly owned subsidiary of Grupo TMM, a Mexican logistics and transportation company. TMM Logistics provides sales support and operating execution within Mexico, and we furnish the same capabilities in Canada and the United States for TMM Logistics.

Management Information Systems

A primary component of our business strategy is the continued improvement of our Network Management System and other technology to ensure that we remain a leader among transportation providers in information processing for transportation services. Our Network Management System consists of proprietary software running on a combination of platforms which includes the IBM iSeries and Microsoft Windows Server environments located at a secure offsite data center. All of our operating centers are linked together with the data center using an MPLS (“Multi-Protocol Label Switching”) network. This configuration provides a real time environment for transmitting data among our operating centers and headquarters. We also make extensive use of electronic commerce (“e-Commerce”), allowing each operating center to communicate electronically with each railroad, many drayage companies, certain trucking companies and those customers with e-Commerce capabilities.

Our Network Management System is the primary mechanism used in our operating centers to handle our intermodal and truck brokerage business. The Network Management System processes customer transportation requests, tenders and tracks shipments, prepares customer billing, establishes account profiles and retains critical information for analysis. The Network Management System provides connectivity with each of the major rail carriers. This enables us to electronically tender and track shipments in a real time environment. In addition, the Network Management System’s e-Commerce features offer customers with e-Commerce capability a completely paperless process, including load tendering, shipment tracking, billing and remittance processing. We aggressively pursue opportunities to establish e-Commerce interfaces with our customers, railroads, trucking companies and drayage companies.

To manage our logistics business, we use specialized software that includes planning and execution solutions. This sophisticated transportation management software enables us to offer supply chain planning and logistics managing, modeling, optimizing and monitoring for our customers. We use this software when offering logistics management services to customers that ship via multiple modes, including intermodal, truckload, and less-than-truckload, allowing us to optimize mode and carrier selection and routing for our customers. This software is integrated with Hub Group’s Network Management System and our accounting system.

Our website, www.hubgroup.com , is designed to allow our customers and vendors to easily do business with us online. Through Vendor Interface, we tender loads to our drayage partners using the Internet rather than phones or faxes. Vendor Interface also captures event status information, allows vendors to view outstanding paperwork requirements and helps facilitate paperless invoicing. We currently tender substantially all of our drayage loads using Vendor Interface or e-Commerce. Through Trucker Advantage, we exchange information on available Hub loads, available carrier capacity and updates to event status information with our truck brokerage partners. Through Customer Advantage, customers receive immediate pricing, place orders, track shipments, and review historical shipping data through a variety of reports over the Internet. All of our Internet applications are integrated with the Network Management System.

Relationship with Railroads

A key element of our business strategy is to strengthen our close working relationship with each of the major intermodal railroads in the United States. We view our relationship with the railroads as a partnership. Due to our size and relative importance, many railroads have dedicated support personnel to focus on our day-to-day service requirements. On a regular basis, our senior executives and each of the railroads meet to discuss major strategic issues concerning intermodal transportation. Several of our top executive officers are former railroad employees, which makes them well suited to understand the railroads’ service capabilities.

We also have relationships with each of the following major service providers: CMA CGM (America ) Inc., Express System Intermodal Inc., Hanjin Shipping, Hyundai Merchant Marine, K -Line America, Maersk Sea-Land, Mitsui O.S.K. Lines (America) Inc. and Pacer International.

These relationships govern the transportation services and payment terms pursuant to which our intermodal shipments are handled by the railroads. Transportation rates are market driven and we typically negotiate with the railroads or other major service providers on a route or customer specific basis. Consistent with industry practice, many of the rates we negotiate are special commodity quotations (“SCQs”), which provide discounts from published price lists based on competitive market factors and are designed by the railroads or major service providers to attract new business or to retain existing business. SCQ rates are generally issued for the account of a single IMC. SCQ rates apply to specific customers in specified shipping lanes for a specific period of time, usually up to 12 months.

We use our network to access containers and trailers owned by leasing companies, railroads and steamship lines. As of December 31, 2007, we also have exclusive access to approximately 2,935 rail-owned containers for our dedicated use on the BNSF and the NS rail networks and approximately 3,175 rail-owned containers for our dedicated use on the UP and the NS rail networks. In addition to these containers, during 2005, 2006 and 2007, we added a total of 7,400 new 53’ containers for use on the BNSF and NS. We financed these containers with operating leases. These arrangements are included in Note 7 to the consolidated financial statements.

Relationship with Drayage Companies

We have a “Quality Drayage Program,” which consists of agreements and rules that govern the framework by which many drayage companies perform services for us. Participants in the program commit to provide high quality service along with clean and safe equipment, maintain a defined on-time performance level and follow specified procedures designed to minimize freight loss and damage. We negotiate drayage rates for transportation between specific origin and destination points.

We also supplement third-party drayage services with our own drayage operations, which we operate through our QS and Comtrak subsidiaries. Our drayage operations employ their own drivers and also contract with owner-operators who supply their own trucks.


Relationship with Trucking Companies

Our truck brokerage operation has a large and growing number of active trucking companies that we use to transport freight. The local operating centers deal daily with these carriers on an operational level. Our corporate headquarters handles the administrative and regulatory aspects of the trucking company relationship. Our relationships with these trucking companies are important since these relationships determine pricing, load coverage and overall service.

Risk Management and Insurance

We require all drayage companies participating in the Quality Drayage Program to carry at least $1.0 million in general liability insurance, $1.0 million in truckman’s auto liability insurance and a minimum of $100,000 in cargo insurance. Railroads, which are self-insured, provide limited cargo protection, generally up to $250,000 per shipment. To cover freight loss or damage when a carrier's liability cannot be established or a carrier's insurance is insufficient to cover the claim, we carry our own cargo insurance with a limit of $1.0 million per container or trailer and a limit of $20.0 million in the aggregate. We also carry general liability insurance with limits of $1.0 million per occurrence and $2.0 million in the aggregate with a companion $25.0 million umbrella policy on this general liability insurance.

We maintain separate insurance policies to cover potential exposure from our company-owned drayage operations. We have general liability insurance with limits of $1.0 million per occurrence and $2.0 million in the aggregate, truckman’s auto liability with limits of $1.0 million and a companion $19.0 million umbrella liability policy.

Government Regulation

Hub Group, Inc. and various subsidiaries are licensed by the Department of Transportation as brokers in arranging for the transportation of general commodities by motor vehicle. To the extent that the operating centers perform truck brokerage services, they do so under these licenses. The Department of Transportation prescribes qualifications for acting in this capacity, including a $10,000 surety bond that we have posted. To date, compliance with these regulations has not had a material adverse effect on our results of operations or financial condition. However, the transportation industry is subject to legislative or regulatory changes that can affect the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of providing, transportation services.

Competition

The transportation services industry is highly competitive. We compete against other IMCs, as well as logistics companies, third party brokers, trucking companies and railroads that market their own intermodal services. Several larger trucking companies have entered into agreements with railroads to market intermodal services nationwide. Competition is based primarily on freight rates, quality of service, reliability, transit time and scope of operations. Several transportation service companies and trucking companies, and all of the major railroads, have substantially greater financial and other resources than we do.

CEO BACKGROUND

Phillip C. Yeager 80 Phillip C. Yeager has been Chairman of the Board since October 1985. From April 1971 to October 1985, Mr. Yeager served as President of Hub City Terminals, Inc. (“Hub Chicago”). Mr. Yeager became involved in intermodal transportation in 1959, five years after the introduction of intermodal transportation in the United States, as an employee of the Pennsylvania and Pennsylvania Central Railroads. He spent 19 years with the Pennsylvania and Pennsylvania Central Railroads, 12 of which involved intermodal transportation. In 1991, the Intermodal Transportation Association named Mr. Yeager the Man of the Year. In 1995, he received the Salzburg Practitioners Award from Syracuse University. In October 1996, Mr. Yeager was inducted into the Chicago Area Entrepreneurship Hall of Fame sponsored by the University of Illinois at Chicago. In March 1997, he received the Presidential Medal from Dowling College for his achievements in transportation services. In September 1998 he received the Silver Kingpin award from the Intermodal Association of North America and in February 1999 the New York Traffic Club named him Transportation Person of the Year. In June 2006, Mr. Yeager was awarded an honorary Doctor of Public Service degree from the University of Denver in recognition of his achievements in the intermodal industry. In December 2006, the Containerization and Intermodal Institute presented Mr. Yeager with their 2006 Connie Award in recognition of his contributions to the industry. Mr. Yeager graduated from the University of Cincinnati in 1951 with a Bachelor of Arts degree in Economics. Mr. Yeager is the father of David P. Yeager and Mark A. Yeager.



David P. Yeager 55 David P. Yeager has served as the Company’s Vice Chairman of the Board since January 1992 and as Chief Executive Officer of the Company since March 1995. From October 1985 through December 1991, Mr. Yeager was President of Hub Chicago. From 1983 to October 1985, he served as Vice President, Marketing of Hub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served as its President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and served as its President from 1975 to 1977. Mr. Yeager received a Masters in Business Administration degree from the University of Chicago in 1987 and a Bachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager is the son of Phillip C. Yeager and the brother of Mark A. Yeager.



Mark A. Yeager 43 Mark A. Yeager has been the Company’s President since January 2005 and has been the Chief Operating Officer and a director since May 2004. From July 1999 through December 2004, Mr. Yeager was President-Field Operations. From November 1997 through June 1999 Mr. Yeager was Division President, Secretary and General Counsel. From March 1995 to November 1997, Mr. Yeager was Vice President, Secretary and General Counsel. From May 1992 to March 1995, Mr. Yeager served as the Company’s Vice President-Quality. Prior to joining the Company in 1992, Mr. Yeager was an associate at the law firm of Grippo & Elden from January 1991 through May 1992 and an associate at the law firm of Sidley & Austin from May 1989 through January 1991. Mr. Yeager received a Juris Doctor degree from Georgetown University in 1989 and a Bachelor of Arts degree from Indiana University in 1986. Mr. Yeager is the son of Phillip C. Yeager and the brother of David P. Yeager.

MANAGEMENT DISCUSSION FROM LATEST 10K

FORWARD LOOKING STATEMENTS

The information contained in this annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. We assume no liability to update any such forward-looking statements contained in this annual report. Factors that could cause our actual results to differ materially, in addition to those set forth under Items 1A “Risk Factors,” include:



the degree and rate of market growth in the domestic intermodal, truck brokerage and logistics markets served by us;


deterioration in our relationships with existing railroads or adverse changes to the railroads’ operating rules;


changes in rail service conditions or adverse weather conditions;


further consolidation of railroads;


the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts by the railroads or marketing efforts of asset-based carriers;


changes in rail, drayage and trucking company capacity;


railroads moving away from ownership of intermodal assets;


equipment shortages or equipment surplus;


changes in the cost of services from rail, drayage, truck or other vendors;


increases in costs for independent contractors due to regulatory, judicial and legal changes;


labor unrest in the rail, drayage or trucking company communities;


general economic and business conditions;


fuel shortages or fluctuations in fuel prices;


increases in interest rates;


changes in homeland security or terrorist activity;


difficulties in maintaining or enhancing our information technology systems;


changes to or new governmental regulation;


loss of several of our largest customers;


inability to recruit and retain key personnel;


inability to recruit and maintain drivers and owner operators;


changes in insurance costs and claims expense; and


inability to close and successfully integrate any future business combinations.

CAPITAL STRUCTURE

We have authorized common stock comprised of Class A Common Stock and Class B Common Stock. The rights of holders of Class A Common Stock and Class B Common Stock are identical, except each share of Class B Common Stock entitles its holder to approximately 80 votes, while each share of Class A Common Stock entitles its holder to one vote. We have authorized 2,000,000 shares of preferred stock.

EXECUTIVE SUMMARY

Hub Group, Inc. (“we”, “us” or “our”) is the largest intermodal marketing company (“IMC”) in the United States and a full service transportation provider offering intermodal, truck brokerage and logistics services. We operate through a nationwide network of operating centers.

As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for local pickup and delivery. As part of the intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

Through our subsidiary Comtrak Logistics, Inc. (“Comtrak”), we acquired substantially all the assets of Comtrak Inc. at the close of business on February 28, 2006. Comtrak is a transportation company whose services include primarily rail and international drayage for the intermodal sector. The results of Comtrak are included in our results of operations from March 1, 2006, its date of acquisition.

Our drayage services are provided by our subsidiaries, Comtrak and Quality Services, LLC (“QS”) who assist us in providing reliable, cost effective intermodal services to our customers. Our subsidiaries have terminals in Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland, Columbus, Dallas, Huntsville, Jacksonville, Kansas City, Los Angeles, Memphis, Nashville, Perry, Savannah, St. Louis, Stockton, and Tampa. At December 31, 2007, QS and Comtrak owned 329 tractors, leased 23 tractors, leased or owned 706 trailers and employed 331 drivers and contracted with 845 owner-operators.

We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations. As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.

Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.

We have full time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation services to them.

One of our primary goals is to grow our net income. We achieved this growth through an increase in revenue and margin from our existing transportation customers, winning new customers and the acquisition of Comtrak. Our yield management group works with sales and operations to enhance customer margins. Our top 50 customers’ revenue represents approximately 51% of our revenue. During 2007, 2006 and 2005, we severed relationships with certain customers due to profitability issues and credit issues which impeded our intermodal revenue growth. We have mitigated our risks in the automotive sector by significantly reducing or eliminating our relationship with two automotive parts suppliers in 2006. While we continue to do some limited business for this sector, we are carefully managing our credit exposure.

We use various performance indicators to manage our business. We closely monitor margin and gains and losses for our top 50 customers and loads with negative margins. We also evaluate on-time performance, cost per load and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely.

Substantially all of the assets of Hub Group Distribution Services, LLC (“HGDS” or “Hub Distribution”) were sold to the President of the former subsidiary on May 1, 2006. Accordingly, the results of operations of HGDS for all years presented have been reported as discontinued operations.

Revenue

Revenue increased 3.0% to $1,658.2 million in 2007 from $1,609.5 million in 2006. Intermodal revenue increased 2.9% to $1,206.4 million from $1,172.6 million due primarily to a 1.0% increase related to Comtrak (we owned Comtrak for 10 months in 2006 and for 12 months in 2007) and a 2.5% increase in volume offset by a 0.6% combined decrease related to pricing, mix and fuel surcharges. Truck brokerage revenue increased 4.1% to $318.8 million from $306.3 million due primarily to price increases, mix and fuel surcharges. Logistics revenue increased 1.8% to $133.0 million from $130.6 million due to increases in business from both new and existing customers in 2007. Hub Distribution’s revenue has been reclassified to discontinued operations due to its sale.

Gross Margin

Gross margin increased 6.4% to $232.3 million in 2007 from $218.4 million in 2006. Gross margin percentage increased to 14.0% in 2007 from 13.6% in 2006 due to various margin enhancement efforts, growth in truck brokerage and our drayage operations, including the addition of Comtrak.

Salaries and Benefits

Salaries and benefits increased to $95.7 million in 2007 from $95.2 million in 2006. The increase is related to Comtrak and an increase in salaries and employee benefits partially offset by a decrease in incentive compensation. As a percentage of revenue, salaries and benefits decreased to 5.8% in 2007 from 5.9% in 2006. Headcount as of December 31, 2007 and 2006 was 1,081 and 1,089, respectively, which excludes drivers, as driver costs are included in transportation costs.

General and Administrative

General and administrative expenses increased to $41.4 million from $39.9 million in 2006 partially due to the acquisition of Comtrak. The increase related to Comtrak was partially offset by a decrease in rental expense, telephone expense, bad debt expense and equipment lease expense. As a percentage of revenue, general and administrative expenses remained consistent at 2.5% in 2007 and 2006.

Depreciation and Amortization

Depreciation and amortization decreased 26.4% to $4.5 million in 2007 from $6.1 million in 2006. This expense as a percentage of revenue decreased to 0.2% from 0.4%. The decrease in depreciation and amortization is due primarily to lower software depreciation due to certain assets being fully depreciated.

Other Income (Expense)

Interest expense remained consistent at $0.1 million in 2007 and 2006. Interest income increased to $2.5 million in 2007 from $2.3 million in 2006. The increase in interest income is due to a higher average investment balance and a higher average interest rate in 2007.

Provision for Income Taxes

The provision for income taxes increased to $33.4 million in 2007 compared to $31.8 million in 2006. We provided for income taxes using an effective rate of 35.9% in 2007 compared to 40.0% in 2006. The decrease in the effective rate in 2007 resulted primarily from the favorable impacts of the resolution of our dispute with the Internal Revenue Service and an Illinois law change.

Income from Continuing Operations

Income from continuing operations increased to $59.8 million in 2007 from $47.7 million in 2006 due primarily to higher gross margin, lower depreciation and amortization expense and higher interest income.

Income from Discontinued Operations

Income from discontinued operations of $1.0 million includes income from the operations of HGDS through May 1, 2006.

Earnings Per Common Share

Basic earnings per share from continuing operations was $1.55 in 2007 and $1.19 in 2006. Basic earnings per share from discontinued operations was $0.03 in 2006. Basic earnings per share increased to $1.55 in 2007 from $1.22 in 2006. Basic earnings per share increased due to the increase in income from continuing operations and the decrease in the basic weighted average number of shares outstanding because of our purchase of treasury shares.

Diluted earnings per share from continuing operations increased to $1.53 in 2007 from $1.17 in 2006. Diluted earnings per share from discontinued operations was $0.02 in 2006. Diluted earnings per share increased to $1.53 in 2007 from $1.19 in 2006. Diluted earnings per share increased due to the increase in income from continuing operations and the decrease in the diluted weighted average number of shares outstanding because of our purchase of treasury shares.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

The information contained in this quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects,” “hopes,” “believes,” “intends,” “estimates,” “anticipates,” and variations of these words and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are inherently uncertain and subject to risks. Such statements should be viewed with caution. Actual results or experience could differ materially from the forward-looking statements as a result of many factors. We assume no liability to update any such forward-looking statements contained in this quarterly report. Factors that could cause our actual results to differ materially include:



the degree and rate of market growth in the domestic intermodal, truck brokerage and logistics markets served by us;


deterioration in our relationships with existing railroads or adverse changes to the railroads’ operating rules;


changes in rail service conditions or adverse weather conditions;


further consolidation of railroads;


the impact of competitive pressures in the marketplace, including entry of new competitors, direct marketing efforts by the railroads or marketing efforts of asset-based carriers;


changes in rail, drayage and trucking company capacity;


railroads moving away from ownership of intermodal assets;


equipment shortages or equipment surplus;


changes in the cost of services from rail, drayage, truck or other vendors;


increases in costs for independent contractors due to regulatory, judicial and legal changes;


labor unrest in the rail, drayage or trucking company communities;


general economic and business conditions;


significant deterioration in our customer’s financial condition, particularly in the retail sector;


fuel shortages or fluctuations in fuel prices;


increases in interest rates;


changes in homeland security or terrorist activity;


difficulties in maintaining or enhancing our information technology systems;


changes to or new governmental regulation;


loss of several of our largest customers;


inability to recruit and retain key personnel;


inability to recruit and retain drivers and owner operators;


changes in insurance costs and claims expense; and


inability to close and successfully integrate any future business combinations.


EXECUTIVE SUMMARY

Hub Group, Inc. (“we”, “us” or “our”) is the largest intermodal marketing company (“IMC”) in the United States and a full service transportation provider offering intermodal, truck brokerage and logistics services. We operate through a nationwide network of operating centers.

As an IMC, we arrange for the movement of our customers’ freight in containers and trailers over long distances. We contract with railroads to provide transportation for the long-haul portion of the shipment and with local trucking companies, known as “drayage companies,” for local pickup and delivery. As part of the intermodal services, we negotiate rail and drayage rates, electronically track shipments in transit, consolidate billing and handle claims for freight loss or damage on behalf of our customers.

Our drayage services are provided by our subsidiaries, Comtrak Logistics, Inc. (“Comtrak”) and Quality Services, LLC (“QS”) that assist us in providing reliable, cost effective intermodal services to our customers. Our subsidiaries have terminals in Atlanta, Birmingham, Charleston, Charlotte, Chattanooga, Chicago, Cleveland, Columbus, Dallas, Huntsville, Jacksonville, Kansas City, Los Angeles, Memphis, Nashville, Perry, Savannah, St. Louis, Stockton, and Tampa. At September 30, 2008, Comtrak and QS owned 313 tractors, leased 22 tractors, leased or owned 605 trailers, and employed 316 drivers and contracted with 866 owner-operators.

We also arrange for the transportation of freight by truck, providing customers with another option for their transportation needs. We match the customers’ needs with carriers’ capacity to provide the most effective service and price combinations. As part of our truck brokerage services, we negotiate rates, track shipments in transit and handle claims for freight loss or damage on behalf of our customers.

Our logistics service consists of complex transportation management services, including load consolidation, mode optimization and carrier management. These service offerings are designed to take advantage of the increasing trend for shippers to outsource all or a greater portion of their transportation needs.

We have full time marketing representatives throughout North America who service local, regional and national accounts. We believe that fostering long-term customer relationships is critical to our success and allows us to better understand our customers’ needs and specifically tailor our transportation services to them.

One of our primary goals is to grow our net income. We achieved this growth through an increase in revenue and margin from our existing transportation customers and winning new customers. Our yield management group works with pricing and operations to enhance customer margins. Our top 50 customers’ revenue represents approximately 48.0% of our revenue as of September 30, 2008.

We use various performance indicators to manage our business. We closely monitor margin and gains and losses for our top 50 customers. We also evaluate on-time performance, costs per load and daily sales outstanding by customer account. Vendor cost changes and vendor service issues are also monitored closely.

Revenue

Revenue increased 23.1% to $514.2 million in 2008 from $417.8 million in 2007. Intermodal revenue increased 21.9% to $369.7 million due to a 9% increase in volume and a 13% increase in pricing related to fuel. Truck brokerage revenue increased 29.0% to $101.2 million due to higher volume, improved mix and pricing, including fuel. Logistics revenue increased 20.1% to $43.3 million related to obtaining several new customers.

Gross Margin

Gross margin increased 9.8% to $63.2 million in 2008 from $57.5 million in 2007. This margin expansion comes primarily from increases in intermodal volume. As a percent of revenue, gross margin has decreased to 12.3% in 2008 from 13.8% in 2007. The decrease in gross margin as a percent of revenue was driven by mix and more competitive pricing in all service lines.

S alaries and Benefits

As a percentage of revenue, salaries and benefits decreased to 4.7% in 2008 from 5.3% in 2007. Salaries and benefits increased to $24.1 million in 2008 from $22.1 million in 2007 due primarily to raises, more employees, and higher bonuses and commissions. Headcount as of September 30, 2008 was 1,112 which excludes drivers as driver costs are included in transportation costs.

General and Administrative

General and administrative expenses increased to $10.8 million in 2008 from $9.6 million in 2007. As a percentage of revenue, these expenses decreased slightly to 2.1% from 2.3%. Total expenses increased due to a loss on sale of tractors, additional marketing initiatives, and driver recruiting costs.

Depreciation and Amortization

Depreciation and amortization decreased to $1.0 million in 2008 from $1.1 million in 2007. This expense as a percentage of revenue decreased to 0.2% in 2008 from 0.3% in 2007. The decrease in depreciation and amortization is due primarily to lower computer software depreciation as some of our software was fully depreciated.

Other Income (Expense)

Interest and dividend income decreased to $0.4 million in 2008 from $0.7 million in 2007. This income as a percentage of revenue decreased to 0.1% in 2008 from 0.2% in 2007. The decrease in interest and dividend income is a result of lower interest rates.

Provision for Income Taxes

The provision for income taxes increased to $10.6 million in 2008 compared to $8.8 million in 2007. We provided for income taxes using an effective rate of 38.6% in 2008 and an effective rate of 34.7% in 2007. The 2007 effective rate was lower primarily because tax legislation enacted by the State of Illinois in the third quarter of 2007 created a benefit from the reduction of non-current deferred tax liabilities. The tax legislation modified how we apportion taxable income to Illinois.

Net Income

Net income increased to $16.9 million in 2008 from $16.6 million in 2007 due to higher gross margin partially offset by higher salaries and benefit costs, income tax expense and higher general and administrative expenses.

Earnings Per Common Share

Basic earnings per share were $0.45 in 2008 and $0.43 in 2007. Diluted earnings per share were $0.45 in 2008 and $0.42 in 2007.

Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

Revenue

Revenue increased 17.9% to $1.4 billion in 2008 from $1.2 billion in 2007. Intermodal revenue increased 14.8% to $1.0 billion due to a 3.6% increase in volume and an 11.2% increase in pricing related to fuel. Truck brokerage revenue increased 27.6% to $289.8 million from $227.1 million due to higher volume, mix and pricing, including fuel. Logistics revenue increased 24.2% to $116.3 million as a result of increased business from new customers.

Gross Margin

Gross margin increased 5.0% to $180.5 million in 2008 from $171.9 million in 2007. This margin expansion is primarily due to strong growth in truck brokerage and new logistics customers. As a percent of revenue, gross margin has decreased to 12.6% in 2008 from 14.2% in 2007. The decrease in gross margin as a percentage of revenue is due to a one-time $2.0 million profitable vendor deal in the first quarter of 2007, the owner operator work stoppage in northern California that cost us an extra $1.0 million in 2008 and competitive pricing.

Salaries and Benefits

Salaries and benefits increased to $73.8 million in 2008 from $71.9 million in 2007 due primarily to raises, more employees, and higher bonuses and commissions. As a percentage of revenue, salaries and benefits were 5.2% for 2008 compared to 5.9% for 2007

General and Administrative

General and administrative expenses remained constant at $31.4 million for 2008 and 2007. As a percentage of revenue, these expenses decreased to 2.2% in 2008 from 2.6% in 2007.

Depreciation and Amortization

Depreciation and amortization decreased to $3.0 million in 2008 from $3.5 million in 2007. This expense as a percentage of revenue decreased to 0.2% in 2008 from 0.3% in 2007. The decrease in depreciation and amortization is due primarily to lower computer software depreciation as some of our software was fully depreciated.

Other Income (Expense)

Interest and dividend income decreased to $1.0 million in 2008 from $2.0 million in 2007. The decrease in interest and dividend income is a result of lower interest rates.

Provision for Income Taxes

The provision for income taxes increased to $28.3 million in 2008 compared to $25.3 million in 2007. We provided for income taxes using an effective rate of 38.6% in 2008 and an effective rate of 37.7% in 2007. The 2007 effective rate was lower primarily because tax legislation enacted by the State of Illinois in the third quarter of 2007 created a benefit from the reduction of non-current deferred tax liabilities. The tax legislation modified how we apportion taxable income to Illinois.

Net Income

Net income increased to $45.0 million in 2008 from $41.8 million in 2007 due primarily to higher gross margin and lower depreciation and amortization expense, partially offset by higher income taxes, salaries and benefits, and reduced interest and dividend income.

CONF CALL

Terri Pizzuto

Thanks, Denise and thanks everyone for joining us. I want to begin by covering three things: first, we had a record quarter; second, Hub’s in a strong stable and safe financial position; third, we were happy to see all three of our service lines growing in this tough economy.

Here are the key numbers: For the third quarter, Hub’s diluted earnings per share increased 7% from 2007 to $0.45. If we take out the one-time $1.2 million tax benefit from 2007, our earnings per share would be up 15%. The third quarter operating margin was 5.3%, that’s compared to 5.9% last year. At the end of September, we had $63 million in cash and no debt.

Now, I’ll discuss details for the quarter starting with revenue. Intermodal revenue increased 22%. This change includes a 9% volume increase and a 13% price increase related mostly to fuel. Local east business was up 22%. What we mean when we say “local east” is freight that moves exclusively on one of the eastern rail networks, the Norfolk Southern or CSX. A few examples of lines would be Chicago to Jacksonville or New York to Atlanta. Part of this local east growth is due to freight that was converted from truck to intermodal.

Truck brokerage revenue was up 29% due to higher volume pricing which includes fuel and mix. One of our fast growing truck brokerage customers in the quarter was a government contractor. That contractor had a surge in business because of the hurricane. They chose Hub because of our expertise and proven track record in finding surge capacity.

One of our top five growing accounts is a manufacturing company who started doing business with us in July. This is a great example of a customer who left us a couple of years ago for price and then came back because of our superior service. It’s also an example of successful cross selling, since we won both their intermodal and truck brokerage freight.

Logistics revenue was 20% higher than last year. This increase in revenue came from several new strategic customers that signed up with us in 2008. Our logistics business focuses on delivering saving, providing load visibility and ensuring carrier compliance. Customers want to drive savings and efficiency through their supply chains and we make that happen. For example we deliver savings by doing carrier bids for customers and then managing the carrier base.

Hub’s gross margin grew by $5.7 million in the third quarter. The biggest contributor to the margin increase was intermodal followed by truck brokerage and then logistics. Hub’s gross margin as a percentage of sale decreased to 12.3%, compared to 13.8% last year.

There are four major reasons for the margin compression compared to last year: Number one, intermodal pricing excluding fuel was down between 1% and 2%, that’s the same pricing trend we had in the second quarter. Number two, we grew with a number of large intermodal customers that have more challenging fuel and accessorial programs.

Number three, truck brokerage yield deteriorated 100 basis points, compared to last year due to soft market conditions and competitive pricing on accounts where we have significant potential to grow. Number four, logistics yield went down 400 basis points, that’s because the mix of services that were providing changed and because we priced more aggressively to land strategic accounts.

Hub’s total cost and expenses in the third quarter were $35.9 million, compared to $32.8 million in 2007. The major drivers of the cost increase in salaries and benefits are more employees, raises and higher bonuses and commission.

General and admin expense is up due to a loss on sale of tractors, more marketing initiatives and driver recruiting costs. We have 1,112 employees excluding drivers at the end of September, that’s an increase of 26 people compared to the end of June. We added people in customer service, truck brokerage and at contracts. We’ll continue to critically evaluate all our costs.

Hub’s third quarter gross operating margin was 5.3%, which is higher than the 4.9% we had in the second quarter. We are confident that we can improve our operating margin over the long-term by being more efficient with our intermodal and drayage operations, managing equipment more effectively and increasing margin on specific customer accounts. Cross functional teams meet every week to monitor detailed action plans to improve the margin on these customer accounts.

Part of the reason Hub is in such a strong financial position is because we are resilient in any economy. We have an asset like model and a diverse customer basis. No one customer is more than 5% of our sales. Many of our customers are large stable companies. Products that we ship include toilet paper, soup, cereals, canned goods, baking soda, toothpaste and other staples that we will be consumed in any economy.

Now turning to the balance sheet and how we used our cash. We had $63 million in cash and no debt at the end of September. Our cash is invested in Treasury security. Hub’s $15 million revolving credit agreement expires in 2010. Free cash flow for the third quarter was $10 million. During the quarter, we spent $5 million on capital expenditures, most of that was for tractors that contract. For the full year, we still think capital expenditures will be around $11 million.

We now have all our 1,000 new 53 ft containers. These containers were financed with operating leases that have about a six-year term. We bought 38,800 shares of stock in the quarter for $1.4 million in connection with the share buyback plan. With the turmoil in the financial markets, we decided to cancel our share buyback plan in September, until things in the credit market settle down. There is $73.6 million remaining under our current share buyback authorization that doesn’t expire until June 2009.

Now, I’m going to discuss 2008 full year earnings guidance. For 2008, we are comfortable that our diluted earnings per share will be within the current analyst range of between $1.65 and $1.70. Partly because of the economy we are estimating we’ll comment at the low end of this range. As a remainder, we had a one-time $0.04 a share tax benefit in the fourth quarter of 2007 related to resolution of the dispute with the IRS. The weighted average diluted shares will be about $37.5 million for 2008.

To wrap it up, hub had solid performance in weakening economy. Our operating income increased over 10% in the third quarter. We’ve only just begun to wrap up our sales engines and take operational efficiency to the next level. We are looking forward to executing on our strategy and with that I will turn it over to Dave.

Dave Yeager

Great. Thank you, Terri. Despite a sluggish economy, we posted another record quarter, generated impressive intermodal growth and also saw double digit gains in both truck brokerage and logistics revenue. Our intermodal business performed very well during the third quarter. As Terri said, intermodal revenue was up 22% with volume growing at 9%. This is the highest volume growth in well over five years.

The structural changes we made a year ago were key factors in achieving this volume increase and it positions us well for future growth. We are particularly pleased with this performance given the slow economy. Although, our retail customers were down for the quarter, we were able to overcome that sectors declines by adding new customers and growing our business in all other segments.

Intermodal service was quite good during the third quarter. Our metric showed service improvements in many of our heaviest shipping lanes. The rails have made significant investments in their infrastructure and these investments have resulted in quicker and more consistent rail transit.

Intermodal capacity is generally been adequate. As expected, we did see capacity tighten considerably of the west coast as we entered peak season; although, the peak did start a little bit later this year than in ‘07. We also saw an improvement in the availability of ISO containers nearly end of the third quarter. These ISO containers were scarce earlier in the year, but currently are accessible in most markets.

Our container fleet is now over 15,600 units and will grow to 15,900 by year-end. Despite our slightly larger fleet our utilization to get improved in the third quarter through a combination of the improved rail service and our own improved equipment management.

Fuel prices drop considerably in the third quarter. Even with lower fuel prices intermodal still has a significant price advantage over truck. We expect there will be interest in converting from truck intermodal for the foreseeable future, particularly in the soft economic environment where companies are eager to save money.

Since it is more fuel-efficient, intermodal is also more environmentally friendly than truck. The US environmental protection agency recently awarded Hub Group its SmartWay Environmental Excellence Award. We earned this award because of our continued efforts to convert business upper highway to intermodal. This conversion results in reduced greenhouse gas emissions in the environment.

Hub Group was one of only three logistics companies to receive this award and we do intend to continue the partner with our customers to help them to reduce their carbon footprint by converting over-the-road business to the environmentally friendly intermodal product.

We continue to be very positive about the future of intermodal and its potential growth. We expect to see continued intermodal volume growth in the fourth quarter. We did see faster volume growth at the beginning of the third quarter than at the end, primarily due to the economic slowdown. As a result of the slower economic environment, we do not expect to particularly long peak season this year and given these economic issues and tougher comparables in ’07, we expect our intermodal volume to grow between 3% to 6% in the fourth quarter.

Our brokerage business grew impressively during the third quarter with revenue up 29%. We continued to generate new brokerage business with some of our existing intermodal customers and have been successful in generating interest from some customers they are completely new to Hub.

In some markets, truck capacity was tight during the third quarter, but overall truck capacity was better than we had expected at the time of last call. We continued to see capacity exiting the marketplace, but with the slower economy there is also less freight to handle and as a result, capacity as we speak is generally plentiful.

Our Unyson Logistics business also a had nice quarter with revenue up 20% as we completed the on boarding of two significant new pieces of business during the quarter. Unyson recently won the Quest for Quality Award from Inbound Logistics Magazine. This prestigious award is determined by customer survey data. We’re proud that Unyson, despite being quite bit smaller than some of the competition was the number one ranked 3PL as we believe that our top ranking demonstrates the value, Unyson is bringing to its customers.

As I’ve said earlier, our growth has been helped by the changes we made in our sales organization one year ago. Since this change, we have had 15 sales people leave the organization and we’ve added 18 new sales professionals. We’ve also added a layer of professional managers, whose job is to help our sales people understand our customers, our product and our network needs.

We’ve also create in an enterprise sales group, which is made up our top performing sales people whose job it is to focus on multimillion dollar opportunities and develop collaborative relationships with these large customers and finally, the realignment of our pricing group within sales rather than yield has helped us price more strategically.

In conclusion, we are proud to deliver another record quarter. We grew our intermodal volume by 9%, our truck brokerage revenue by 29% and our logistics revenue by 20%. We have a more directed and energetic sales force and with our flexible asset laid model we are well position for the future. We look forward to continuing our growth as we finish 2008.

And at this point in time, we’d like to open it up to any questions that you may have.

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